Bryan Caplan  

Outside Offers, Matching, and Discrimination

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One of the best ways to get a raise from your current employer is to get a better offer from a competing employer.  You just tell your boss, "Match their offer or I walk."  The risk, of course, is that your current employer will respond, "Don't let the door hit you on your way out."

Question: Do employers ever get sued for discrimination because they failed to match outside offers?  If labor markets are full of taste-based discrimination, you should definitely expect employers to be less eager to match outside offers for workers in protected classes.  But I've never heard anyone complain about such discrimination.

Perhaps on some level people realize that alleged taste-based discrimination is usually statistical discrimination in disguise.  Since your current employer already knows you as an individual, people interpret his unwillingness to match as postjudice rather than prejudice.  But this line of reasoning should make us skeptical whenever a current employee (as opposed to a mere applicant) cries foul.  So what's the real story?

P.S. If you can find links to real-world stories about workers suing employers for failure to match outside offers, please post them in the comments.


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COMMENTS (8 to date)
david writes:

IANAL, nonetheless:

Duly note that if an employer in one member of a protected class receives an outside offer and is promoted, and another employer in another member of the protected class receives a similar outside offer and is not promoted, then there is definitely EEO-relevant evidence in play (disparate treatment in promotional criteria).

Furthermore, statistical discrimination (in disguise or not) can itself be used - the law as it stands is that employers are expected to bear all the costs of (not being able to) statistically discriminate and any customer-side racial taste discrimination - and the onus of proving any disparate treatment is business-relevant aside from customer discriminatory preference is on the employer, not the employee. Rational statistical discrimination would not only not be a defense, it would be an admission of violation.

In practice managers are human people and many cases involve a lot of he-said-she-said discriminatory remarks as well. I rather doubt any case of purely promotional criteria discrimination detectable only through statistical inference and absent a history of racial discrimination would persuade any court.

Aaron writes:

In my experience, "match their offer or I walk" is a lose-lose situation. Companies that are "building organizational capital" (Garret Jones model, etc.) depend on some degree of longer term commitment. Pulling that strategy is a great way to get yourself stuck at your current level. Nobody wants to invest in someone who has indicated that they'll leave as soon as someone else offers more money. More money in the short term doesn't necessarily mean better outcomes/higher pay in the long term.

I suppose that is a bit outside of the main point of your post, but I see that as a common assumption that people have and it's not always true.

Phil writes:

Maybe it's this: when a "protected" worker doesn't get hired, we feel sorry for him because he's still unemployed.

But when a "protected" worker doesn't get his salary matched, we don't feel sorry for him because he's about to make more money, and obviously doing pretty well.

---

In addition: one of our fears is that NOBODY will ever want to hire a "protected" worker. But under the "won't match" scenario, there's proof that the worker can do OK *somewhere*. So, the second case seems more like specific, minor inconvenience than widespread injustice.

Tom West writes:

In my experience, "match their offer or I walk" is a lose-lose situation.

Seconded.

Far better is to have management "find out" that other employers are interested in you. At that point, you've not proved yourself to be entirely mercenary, but obviously you're valued by others.

(Hm. I may be playing too much Diplomacy.)

Dan Carroll writes:

I don't have insight into the legal ramifications.

However, unless the employee is a highly valued employee (i.e., he has clients or significant negotiating power), I suspect counter-offers are usually more the product of the immediate need. If the employee performs a function that is essential and he can't easily be replaced in the short term, then an employer is "held hostage." Almost anyone can be replaced in the long term. The payback comes later in the form of reduced trust, reduced opportunities, and even short-listed for layoffs.

Seeking outside offers for most people is not a good negotiating tactic. There are exceptions. But generally seek an outside offer only if you plan to leave.

Phil writes:

Another way I think about it: people generally respond to a situation with a "what if it's me?" reaction.

Not hired because of race? What if it's me? Bad!

Rent goes up 20%? What if it's me? Bad! We need rent controls!

Free trade causes certain jobs to be lost? What if it's me? Free trade bad!

But:

Employer won't match an offer? What if it's me? Screw it, I'll just take the other job and more money. No problem!

collin writes:

From my experience most people who leave simplies the life of the employer a lot. They don't match the offere because in most cases the employer already knows the employee is looking elsewhere. The most successful tactic is discuss these matters during reviews and see if your employee improves conditions or wages.

If you are going to use match this offer tactic, the employee has already has to assume they are switch companies.

CR

Paul writes:

If the taste-based discrimination model we're using is the Becker model and we assume that the proportion of the labor force consisting of 'protected classes' is large enough, then the employees in 'protected classes' (which I have interpreted as groups facing such taste-based discrimination) are paid their marginal product less the discrimination factor of the marginal employer.

Given that these employees are being paid their 'value' to the employer, why should the employer be less likely to match outside offers for these employees than non-protected employees (who are paid more since they're paid their marginal product)?

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